System Startups Get Fresh Funding

Compellent and Ario, systems startups with differing agendas, aim for profits in 2007

September 26, 2006

5 Min Read
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A vigorous storage market is being eyed hopefully by startups, who have new grounds for their optimism. Compellent and Ario Data -- two vastly different storage systems vendors -- have picked up funding they predict will take them to profitability next year.

Compellent received $15 million today and Ario will disclose an $8 million round Tuesday. (See Compellent Picks Up $15M.) The funding comes in the wake of IPOs of CommVault and Riverbed last week that show going public is no longer a pipedream for storage companies. (See CommVault Swims in Public Pool and Riverbed Comes Out at $9.75.)

Compellent now has a total of $53 million over three funding rounds. The lead investor in the new round is Japan-based Nomura International.

The company clearly has its eye on IPO, although it is still tiny compared to many SAN competitors. A source familiar with the firm says Compellent projects $25 million in revenue this year, up from $10.5 million last year. Compellent marketing VP Bruce Kornfeld says the company has had a few profitable quarters and hopes for "consistent profitability" in 2007.

According to Kornfeld, Compellent's growth is based on beating larger SAN vendors on price and smaller ones on functionality. For instance, he claims a Compellent Storage Center SAN costs half as much as a corresponding EMC Clariion CX3 with the same amount of capacity. As for other privately held competitors, such as 3PAR, Xiotech, and iSCSI vendors EqualLogic and LeftHand Networks, Kornfeld says Compellent's edge is offering Fibre Channel and iSCSI in the same system.Compellent claims 400 customers and has grown from 70 to 108 employees over the past year. "We're still in very heavy headcount growth mode," says Kornfeld. The focus over the next year, he maintains, will be to expand internationally.

If it all works as planned, an IPO will be discussed, but Kornfeld's not projecting too specifically. "The IPO's going to happen when the IPO happens," he says. "We can say that next year is the goal. To go public we need to establish consistent revenue growth, which we have, and we have to show consistent profitability."

Compellent executives and investors will likely pay close attention to when NAS vendor Isilon completes its IPO plans. (See Isilon Reveals IPO Plans.) Although it is not a direct competitor, Isilon is a systems company and more comparable to Compellent than vendors CommVault and Riverbed. Isilon had $23.8 million in revenue for the first half of 2006, although it is not yet profitable.

But shadows loom. Even with the recent storage IPOs, there is no guarantee Compellent will make it public next year. After all, CEO Phil Soran said he hoped Compellent wouldn't need more funding when it completed its previous round in May of 2005 -- and here we are. (See Compellent Corrals $15M.)

One analyst, who asked not to be named, says Compellent's revenues are unimpressive after three years of selling products. A lineup of SAN companies, including 3PAR, EqualLogic, and LeftHand, appear to be better IPO candidates."They're three years in the market, but others have left them in the dust," says the analyst. "When I rattle off storage vendors, eventually I get down to Compellent, but they're not at the top of the list."

Ario Data, meanwhile, is new to the systems game, having just shifted its identity from a manufacturer of SATA and SAS controllers to a maker of storage systems. (See Ario Extends Controllers and Ario Goes FC to SAS .) Clearstone Venture Partners and Partech International led the startup's latest round, which brings Ario's total funding to $44 million over three rounds.

"Talk about somebody reinventing themselves," says analyst Greg Schulz of StorageIO Group. "They're doing interesting things with the packaging their blades. They've evolved from a chip company to an overall storage systems vendor."

Ario CEO Russell Krapf says he shifted gears because he sees that he calls the "capacity-focused OEM VAR" market growing to $1 billion in 2008.

According to Krapf, Ario will continue to support its previous controller products for OEMs shipping them, but "we're not focusing on that. We're focusing on storage system products. We'll continue to ship controllers but we're not out trying to sell them to OEMs."Schulz says even as a systems vendor, Ario won't be going head to head with most of the SAN companies out there. He expects Ario's enclosures to end up in vertical markets where high-density systems fit, such as video surveillance, seismic exploration, and telemetry.

"They're going to play in particular verticals, and they may find their technology integrated with virtual tape libraries or disk-based libraries combined with somebody else's storage systems," he says. Schulz says StorageTek had a similar design with its BladeStor systems a few years back, and he expects more systems based on a blade design. (See StorageTek Expands BladeStore Family.)

Ario's new Capacity Storage Array consists of 13 blades that each hold four drives and plug into a 4U enclosure. Customers can pull out any blade to add or change drives. (See ARIO Pioneers Position.) A fully loaded enclosure holds 26 Tbytes.

Krapf isn't ready to talk IPO yet, but he says he hopes to be profitable in 2007. He says Ario has shipped new systems products to five OEM customers. Although the systems support SAS as well as SATA, he expects most early systems to be SATA only.

Dave Raffo, News Editor, Byte and Switch

  • 3PAR Inc.

  • ARIO Data Networks Inc.

  • http://www.clearstone.com

  • CommVault Systems Inc.

  • Compellent Technologies Inc.

  • Double-Take Software Inc. (Nasdaq: DBTK)

  • EMC Corp. (NYSE: EMC)

  • EqualLogic Inc.

  • Isilon Systems Inc. (Nasdaq: ISLN)

  • LeftHand Networks Inc.

  • Nomura International

  • Partech International

  • Riverbed Technology Inc. (Nasdaq: RVBD)

  • The StorageIO Group0

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